Examining the Rise of the Informal Economy in Zimbabwe: A Call for Action

In a revealing milestone for Zimbabwe’s economic landscape, the nation’s inaugural economic census has shed light on a significant and often overlooked aspect of its economy: the informal sector. The results are nothing short of striking. They paint a vivid picture of how deeply embedded informal enterprises have become in the fabric of everyday life for many Zimbabweans. Have you ever stopped to ponder how much of our daily commerce remains unrecorded and unregulated? It’s a question that has become increasingly pressing.

The Zimbabwe National Statistics Agency (ZIMSTAT) recently published these eye-opening findings, which illustrate how informal businesses are emerging as critical sources of livelihood. However, there lies a caveat: despite their proliferation, their contributions to government revenue remain woefully inadequate, primarily due to a lack of compliance with the formal tax framework. This raises an important question: what can be done to bridge this gap? Is there a path that could harness the potential of these informal enterprises while ensuring they contribute fairly to the economy?

According to the Confederation of Zimbabwe Industries (CZI), which serves as a prominent industry body within the country, the situation poses a “critical risk” to Zimbabwe’s broader economic health. MacDonald Mutengo, a lead research officer at CZI, articulated the dilemma succinctly during a recent seminar. He remarked, “Formal businesses are being squeezed.” This worry resonates with many business owners attempting to navigate a landscape marred by regulation and competition from informal counterparts. “Companies are not making profits; they are highly regulated,” Mutengo highlighted, speaking to the uphill battle faced by formal businesses attempting to thrive in an environment where informality reigns.

The growth of the informal sector is, in many ways, a natural reaction to external pressures—loss of job opportunities, hyperinflation, and years of economic mismanagement have eroded trust in formal employment structures. The situation is further exacerbated by periodic currency depreciations that leave many feeling like they’re grasping at straws. A report by Bloomberg highlights this series of unfortunate events, emphasizing the need for a more cohesive approach to economic recovery.

The census, which surveyed over 204,798 businesses, revealed some compelling statistics: wholesale and retail trade accounts for a staggering 73% of informal economic activity. Manufacturing, in comparison, trailed at a mere 8%. It prompts us to ask, what happens when the majority of economic activity exists outside the formal structures designed to support it? What does this mean for public services and infrastructure?

Geographically, the disparities within Zimbabwe are telling. Bulawayo exhibits the highest concentration of formal enterprises among the provinces, accounting for 40% of such businesses. Other regions, conversely, are strikingly lower, with less than 30% of the local market comprised of formal businesses. This raises a notable concern: how do we foster conditions in underperforming areas so they can catch up and thrive?

The Informal Economy’s Influence Across Africa

Zimbabwe isn’t an anomaly in its struggle with informality; rather, it shares this predicament with many African nations. Take Kenya, for example. According to a 2024 report by the Kenya National Bureau of Statistics (KNBS), a staggering 83.6% of the workforce is engaged in the informal sector, translating to around 17.4 million people. A striking number of these informal enterprises—703,700 new jobs—accounted for 90% of all employment outside the small-scale agricultural sector. This raises an intriguing question: is informality becoming a necessary evil in the face of more significant employment barriers?

Nigeria presents another noteworthy case. In the country, approximately 89.4% of Micro, Small, and Medium Enterprises (MSMEs) operate informally. However, a bright spot emerges—an impressive 89% of these informal enterprises reportedly pay some form of tax, hinting at the viability of integrating this sector into the formal economy. Is it possible to cultivate a sense of responsibility among informal businesses? What incentives could encourage them to shift towards a more formally structured existence?

The expansion of the informal sector is a multifaceted issue that demands urgent attention. While it is indeed a lifeline for many, it also presents fundamental challenges that could place economic stability at risk. As we reflect on these insights, one thing becomes clear: tackling the informal economy isn’t just about regulation; it’s about crafting an ecosystem where both formal and informal entities can coexist, thrive, and contribute equitably to Zimbabwe’s economic fabric. The road ahead may be complex and fraught with challenges, but it is a journey well worth embarking upon.

Edited By Ali Musa
Axadle Times International – Monitoring